VW employees are preparing for the consequences of years of neglect

Craig Trudell and Stefan Nicola
| Bloomberg

Volkswagen AG is embarking on an unprecedented restructuring in Germany, a move that is tantamount to making amends for the problems that have plagued its namesake brand for years.

The manufacturer plans to close at least three German plants, downsize all remaining plants in the country and cut wages by 10% for about 140,000 workers. It also intends to freeze wages next year and in 2026 and abolish one-off payments for long-serving employees.

The failed actions are astonishing in their scope and depth, reflecting the scale of the challenges facing a company that has neglected to address overcapacity and persistently high costs. While Volkswagen workers still enjoy protection from its powerful works council, as well as government ownership and representation on the supervisory board, it may no longer be enough to insulate the bloated and increasingly uncompetitive operation of VW’s namesake brand.

“We currently do not make enough money from our cars, and the costs of energy, materials and personnel are constantly rising,” Thomas Schäfer, CEO of the VW brand, said on Monday. “We can’t continue as before.”

The VW brand stumbled in its transition to electric cars, and the ID family of electric vehicles sold poorly at home and abroad due to early software problems. Volkswagen’s other mass-market brands – Spain’s Seat and Škoda in the Czech Republic – offer comparable models that are typically cheaper and compete for similar customers.

Volkswagen declined to comment on the details of the cuts it is seeking. Details were revealed on Monday at meetings of more than 50,000 workers across Germany, including in the company’s hometown of Wolfsburg, where works council chief Daniela Cavallo summed up the plans as “starvation” and “installment weakening.”

Although employees cheered, whistled and applauded at several points during Cavallo’s speech, the energy quickly faded as she finished her remarks. At the Wolfsburg train station, men arriving for their afternoon shifts shook their heads and stared at the pavement, waving requests to discuss the announcements.

Major job cuts in Germany would exacerbate problems for Europe’s largest economy, which is expected to contract in 2024 for a second year in a row.

Schäfer said that VW plants in Germany are not productive enough, adding that some of them are twice as expensive to maintain as competing plants. Domestic industrial companies lamented high energy costs due to the loss of cheap natural gas due to Russia’s invasion of Ukraine. Many of them are increasingly investing abroad.

“This is a huge cultural change that is taking place at Volkswagen,” said Matthias Schmidt, an independent automotive analyst who lives near Hamburg. “It used to be virtually impossible for unions and local government to get such cuts.”

Trade union representatives control half of the seats on Volkswagen’s supervisory boards. This, combined with the fact that the parent state of Lower Saxony owns a significant stake in the company and has its own headquarters, has largely shielded VW’s German operations from past restructuring efforts.

Volkswagen had long dominated car sales in Europe and contributed to Germany’s post-war economic renaissance with mass-market models such as the Beetle and Golf hatchbacks. The latter was the best-selling car in Europe from 2007 until 2022, when it lost its leading position to Stellantis NV’s Peugeot 208. Model Y by Tesla Inc. last year it topped the European rankings, and Golf dropped to 7th place.

In the first half of the year, the VW brand achieved an operating margin of just 2.3%, which is just over half of last year’s sales return and is not even close to the 6.5% expected by management in 2026.

Monday’s gains kicked off what could be a controversial week for the company: The company is expected to report a decline in sales and earnings on Wednesday when it reports third-quarter earnings. The second round of negotiations with the trade union regarding cuts will begin on the same day.

“These cuts are not just about Volkswagen wanting to increase its margins,” Schmidt said. “The company needs them to survive.”

With the help of Monika Raymunt